Paying Your Bills

• It is extremely important that you make your mortgage payment on time - everytime - each month for the amount required.
  
  Missing a payment, or even being late a few days, can cost you extra fees and affect your credit report.
  
  If circumstances prevent you from making timely payments, contact the lender 5-10 days prior to your payment due date and explain your situation. Many lenders will work with you to prevent costly fees and adverse credit conditions.
  
  Let's review some procedures that you can take to avoid any payment problems.
  
  
  

1. Get Automated Draft:

• Most lenders offer automated draft of your monthly mortgage payment
  
  from your personal money (checking, savings, money market) or investment account.
  
  This is the easiest and less costly method to ensure timely payments.
  
  Make sure you have enough money in the account to cover the draft for your mortgage payment. If the first attempt fails due to insufficient funds, lenders will typically attempt a second time to withdraw funds.
  
  
  
• If you continue to have insufficient funds in the account after the second attempt, you may be assessed a fee.
  
  In addition, your mortgage payment will be overdue. You must contact the lender immediately to make payment before it becomes 30 days late.
  
  You should back up your money account with an overdraft account. An overdraft protection feature automatically puts money into your account in the event that you don't have sufficient funds to cover a charge against your account.
  
  Discuss your overdraft protection needs with your bank.
  
  
  

2. Automated Bill Payment:

• If your lender does not offer automated draft,
  
  or if you prefer more control over your bank account, look into setting up reoccurring bill payment schedule through your bank's online bill payment feature.
  
  Many banks offer this service FREE to their banking customers. If not, you can shop around to find a bank that does.
  
  You simply link to the bank's online banking site and register for bill payment services. Follow their instructions on setting up recurring bill payments.
  
  
  
• Make sure you read carefully how the DUE DATE works.
  
  Many bill payment services require a 3-5 day lead time to ensure timely payment.
  
  You should check with your mortgage lender and request information where e-payments should be sent. Some lenders have a special lock box for e-payments.
  
  Make sure you have sufficient funds in your account when your due date occurs. Banks will require that you have funds in the account before they initiate payments.
  
  
  

3. PC Bill Pay:

• Another option is bill pay through a PC Personal Management Software program (PFM).
  
  The procedure requires you to setup bill payment through your bank or other bill payment services company.
  
  You simply follow the instructions in the PFM software to setup your bill payment accounts and instructions.
  
  
  
• Many of these PFMs allow reoccurring or automated bill payment,
  
  which means you don't need to do anything to initiate the payment. You simply setup the payment information and forget about it.
  
  Most banks and bill payment services charge a fee for this service. Check around to find the best program.
  
  For more information about PFM software:
  Quicken® Financial Management
  MicroSoft Money®
  
  For more information about Bill Payment Services:
  CheckFree
  
  
  

4. Professional Bill Payment Services:

• There are private bill payment companies that manage your bill payments.
  
  They will make payments on your behalf to your mortgage lender and whomever you designate.
  
  The advantage of these services is that someone is monitoring your bills to ensure payments have been made and delivered.
  
  These services are the most expensive type of bill payment service.
  
  Check the yellow pages for services in your area:
  bill paying services

Quick Mortgage Payoff Plans

1. FAST Payoff Plan:

• What if You Can Payoff Your Mortgage Quickly
  in about 1/3rd of the time without changing your current monthly payment or cash flow position.
  
  By paying off your mortgage early, you can save a lot of money by not having to pay all that interest to the banks
  
  click here for quick slide presentation on how you can payoff your mortgage FAST
  
  includes a FREE, no obligation profile analysis of your current mortgage payoff position
  

2. Get a Shorter Term:

• Another quick way to pay down your mortgage is to start with a shorter term.
  
  Both fixed rates and adjustable rate mortgages come with 15-Yr terms. You can payoff your mortgage in half the time and reduce your total interest paid by approximately 2/3rds.
  
  For illustration:
  view the savings below for a mortgage loan of $100,000:
  
  

  15-Year  30-Year Interest Rate (APR):  7.50%   8.00%  Monthly Payment:  $927.01 $733.76 Number of Payments:  180  360 Total Money Spent: $166, 862 $246,149 Total Interest Paid:  $66,862  $164,149

  
  
  

3. Little Extra Each Month:

• If you like the option of paying off your mortgage faster but don't have the finances to pay the higher monthly payment under a 15-Yr term,
  
  consider pre-paying your mortgage a little each month.
  
  Start with a mortgage loan that has a 30-year repayment term. You will be required to pay the minimum amount each month based on a 30-year amortization schedule.
  
  You can pay a little extra each month by sending in an amount that is over the minimum amount required.
  
  For example ($100,000 / 7.50%APR / 30-Yr / $699.21 Payment):
  
  If you paid $25 extra each month ($724.21), you will payoff your mortgage in 26 years and 8 months, saving you $20,663 in interest.
  
  If you paid $100 extra each month ($799.21), you will payoff your mortgage in 20 years and 5 months, saving you $56,312 in interest.
  
  Link to this payoff calculator to run your own numbers:
  http://www.dinktown.net
  
  or download FREE our amortization worksheet (Excel file): click
  
  
  
• You can pay as little as $1 over the minimum requirement to as much as you like.
  
  Please note that your minimum payment amount will remain the same each month no matter how much you prepay.
  
  
  
• This "pay a little extra" option allows you to budget your finances so that you can prepay when circumstances allow.
  
  The prepayment option is for homeowners who have the discipline and budget to prepay a little extra each month in order to take full advantage of the reduced cost.
  
  You can discipline yourself to making extra payment by using one of the automated payment features discussed above.
  
  

Important Note:

• Some mortgage lenders penalize on prepayment.
  
  If you mortgage lender has a prepayment penalty, negotiate to have that prepayment clause removed.
  
  Also be sure to notify your lender that any extra cash over the minimum payment is for reducing the mortgage principal, and is not to be used to pay for any non-accrued mortgage interest.
  
  
  
• Some lenders maintain a window when prepayments can be made to reduce the principal.
  
  Typically, this window is about 15 days after your monthly payment due date.
  
  For example, if the monthly payment is due on the 15th of each month, the lender will accept your prepayment from the 16th to the 30th. Any payment received outside of this window will be used to pay accrued mortgage interest.
  
  This window of payment is only applicable with some lenders. So check with your mortgage lender before making extra payments.
  
  
  

4. Accelerated (Bimonthly) Payments:

• Many lenders offer the accelerated payment schedule: which allows you to pay half of your monthly mortgage payment every two weeks.
  
  Say your monthly mortgage payment equals $1000. Under the accelerated payment schedule, you will pay $500 every two weeks.
  
  This equals to 26 bimonthly payments, or equivalent to 13 monthly payments instead of the standard 12. You can in effect payoff your 30-year loan in 272 months.
  
  For example ($100,000 / 7.50%APR / 30-Yr / $699.21 Payment):
  
  If you participated under the bi-monthly accelerated program, you will pay $349.60 every two weeks.
  
  You will payoff your mortgage in 23 years and 3 months, saving you about $40,000 in total interest.
  
  Link to this accelerated mortgage calculator to run your own numbers: http://www.dinktown.net
  
  
  
• Another way to reduce your loan in the same way is to prepay an additional 1/12th of your monthly payment each month.
  
  In the example above, you will add on $58.27 to your monthly payment. You will payoff your mortgage in about 23 years and 3 months, saving you about $40,000 in total interest.
  
  Check with your lender about bi-monthly accelerated program. Or you may discipline yourself and use the prepayment option under one of the payment programs discussed above.
  
  
  

5. Feeling Lucky:

• Circumstances may favor you someday with some extra money: big bonus, inheritance, lottery winnings, etc.
  
  Question: should you take the extra money and payoff your mortgage or invest the money into something else?
  
  You need to run the numbers. It depends on several factors:
  

  Current APR: if your APR is low, perhaps your extra money can make a better return on some other investment — check with your financial advisor
  
  Your Income Tax Bracket: if you are in a high income tax bracket, your mortgage interest reduction may make another option for use of the money more attractive — check with your tax advisor
  
  Anticipated Length of Stay: you might consider moving into another house. So use the extra money as a down payment for your new home.
  
  Current Neighborhood: if you neighborhood is going down, you might consider selling instead of paying off your current mortgage.

Avoiding Foreclosure

• If you repeatedly fail to make your mortgage payment on time,
  
  your lender has the right under the mortgage contract to enter foreclosure proceedings.
  
  Foreclosure proceedings can vary by state and type of home (FHA, VA, etc.). A foreclosure on your property can result in your eviction from your property and the sale of your home to recover the lender's cost.
  
  
  
• You will want to avoid foreclosure proceedings.
  
  Always make your minimum payment on time at the amount required. Foreclosure proceedings can force you out of your home and damage your credit rating.
  
  Unfortunately, circumstances may force you into foreclosure — loss of job, loss of income, divorce, death, injury, etc.
  
  If you face any of these situations where you are unable to make timely payments, please note two important points:
  

• Protect your credit rating:
  
  Contact your lender if you are unable to make timely payments. They will most likely help you out. Any foreclosure can damage your credit.
  
  
• Protect your home investment:
  
  If you have substantial equity in your home, you will want to protect it. Entering into foreclosure can wipe out everything that you have gained over the years.
  
  When lenders repossess your home, they are not interested in getting your value out. They are only interested in recovering their loan money — even at a loss to you if necessary.
  
  With these two concepts in mind, here are some guidelines to consider when you are near the threat of foreclosure:

1: Discuss Your Situation with Your Lender:

• Lenders do not like to foreclose on homes. It is costly.
  
  Foreclosure is their last resort when other actions to recover their costs fail.
  
  You need to contact the lender early when you anticipate payment problems. Waiting for the lender to contact you AFTER failing to make timely payments is not a sign of good faith.

• Lenders will try to work with you to develop a plan that will avoid foreclosure.
  
  They may re-negotiate the terms of the loan where you can temporarily make 1/2 of the payment, for example, until you can get your life back on track.
  
  Please Note: by building a history of timely payments with your lender allows the lender to work with you under favorable terms.
  
  Lenders are more willing to work with "good" customers during hard times than with a customer who has a history of late or missed payments
  

2: Sell Your Home to Protect Investment:

• If you have built enough equity in the home, you should try to recover your full investment.
  
  Consider putting your home up for sale YOURSELF and using the proceeds to pay off the mortgage loan.
  
  This is certainly not the most favorable option, but it does protect what equity you have built over the years as long as you can sell your home without paying real estate commissions.
  
  We have tips on "For-Sale-By-Owner":
  click here for our 5-Step Plan.
  
  
• The home sale will force you into another place, perhaps a less expensive home or into a rental.
  
  Consider this a temporary set back until you can recover to assume another mortgage.
  

3: Seek Credit Counseling:

• There are a number of agencies that can help you avoid foreclosure.
  
  They will contact the lender (plus other creditors) to develop a plan that will help you through hard times.
  
  You should contact these agencies before missed payments to avoid damaging your credit report.
  
  Here are some places to start:
  National Foundation for Credit Counseling:
  http://www.nfcc.org/

  Debt Management Services:
  http://www.dca.org/
  

4: Have Your Lender Sell Your Home:

• Some states allow for the "short sale".
  
  This is where you and your lender agree to sell the home at market value. The sale price than goes to the lender and payoffs the mortgage loan
  
  
• Another option is to sign the title of your home over to the lender.
  
  The lender will then put your home up for sale, during with time you can retake the title if you repay your past debts.
  
  The only advantage of these two options is that you protect your credit rating. You will be forced out your home once it sells, unless you can raise the money to pay back the mortgage debt.

5: Beware of foreclosure scams:

• There are parties out there that want to take advantage of your situation.
  
  They promise everything to you, but in the end you find yourself losing your home and your investment.
  
  View these notes on foreclosure scams:
  http://www.2-stop-foreclosure.com/traps.htm

My Mortgage Has Been Sold

• Lenders sale mortgages all the time.
  
  Many of these mortgages are securitized and resold as investment instruments to pension funds, IRA funds, and the like.
  
  Fannie Mae and Freddie Mac are two stock-holding companies that purchase mortgage loans from lending institutions and secure them for resale to the investment community.
  
  Buying back mortgage loans allow these agencies to provide a continuous flow of affordable funding to banks who reinvest their money back into more mortgage loans.
  
  For information:
  http://www.fanniemae.com/
  http://www.freddiemac.com/
  
  
  
• Another purchaser of mortgage loans are large banking institutions who have the service operations in place to service mortgage loans.
  
  Small lenders don't have the same scale of operations, so it is to their advantage to sell mortgages to big operators who can service and maintain the mortgage at a fraction of the cost.
  
  
  
• In any event, nothing changes for you. Your mortgage terms, payments, interest rate, etc., remain the same.
  
  The only difference is that your payments will need to be sent to another address.
  
  Your originating lender must notify you in advance when your mortgage is going to be sold.
  
  You should receive notification from your original mortgage servicer and another notification from the new mortgage servicer.
  
  The information should specify:
  
  
  • name and address of new servicer
    
    
  • date when your current servicer will stop accepting payments
    
    
  • date when your new servicers will accept payments
    
    
  • 1-800 numbers where you can receive information from both current and the new servicer
    
    
  • information whether you can continue any of the service terms that are not part of the "actual" mortgage contract; i.e., mortgage disability and life insurance
    
    
  • statement that your mortgage contract terms and conditions do not change (rate, loan type, repayment terms)
    
    however, there may be exception to the terms that are directly related to servicing your loan — e.g.; whether new servicer will maintain an escrow account.
    
    
    
• You have a 60-day grace period to make any change of address in forwarding your payments.
  
  During which time you cannot be assessed any late fees or have any delinquent reports to the credit rating if you mistakenly sent your mortgage payment to your original servicer.
  
  For FTC information:
  http://www.ftc.gov/opa/predawn/F93/mortserv.htm